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Dasin Retail Trust focuses on the long term despite challenges from Covid-19 outbreak

Amala Balakrishner
Amala Balakrishner • 9 min read
Dasin Retail Trust focuses on the long term despite challenges from Covid-19 outbreak
s retailers brace themselves for a further slowdown, Dasin Retail Trust’s newly-appointed CEO Wang Qiu is confident the company can withstand this ‘temporary’ test.
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SINGAPORE (Mar 27): China’s retailers are feeling the heat from lockdowns and safe distancing measures as nearly half of consumer-facing companies there lack the cash to survive for another six months. Restaurants and caterers have had it hard with about 60% reportedly not being able to cover labour and rental costs, according to Bloomberg, while entertainment and education operators share a similar fate as they shut their doors indefinitely.

These jitters showed up in China’s retail sales index, which plunged 20.5% y-o-y for January and February 2020 – making this the index’s very first dip. And as retailers brace themselves for a further slowdown, Dasin Retail Trust’s (DRT) newly-appointed CEO Wang Qiu is confident the company can withstand this ‘temporary’ test.

“China’s measures to contain Covid-19 have been effective,” Wang tells The Edge Singapore in a recent phone interview. “It has provided DRT with an opportunity to normalise business levels going forward,” she notes, adding that the trust’s five malls have gone from operating shorter hours in January to resuming their usual hours between end- February and early March. This is because Guangdong province – where DRT’s five malls are located – encounters fewer cases of Covid-19.

Wang says while daily life and businesses have resumed, DRT has adopted additional precautionary measures – such as having proper air ventilation to ensure its patrons are well- protected. For now, the sub-urban malls’ supermarket chains, drug stores and pharmacies are fully operational and restaurants – which were previously doing only takeaways – recently started in- house -operations with stiffer measures. These include ensuring a 1m distance between groups of diners and the use of contactless payment apps such as WeChat.

On her part, Wang is looking at novel ways to attract consumer traffic. These include the introduction of Dasin Hui (Dá xin huì zhíbò jiān) – a live streaming service hosted by influencers to promote a plethora of items sold at the mall. The items include jewellery, fashion apparel and furnishings which are sold at significantly lower prices to remain attractive. And this has effectively translated into more patronage, says Wang. Also, the trust’s recent live telecast from its Doumen Metro mall garnered some 14,000 views.

In addition, DRT also offers an online – offline rewards system through its Dasin Pass. Though it is an existing feature, Wang says it has come in handy now as shoppers can receive the same rewards and rebates when shopping online and in the brick- and- mortar stores.

While the measures are expected to garner more traffic to DRT’s malls, Wang acknowledges that some businesses may still have difficulty tiding through this period. Hence the trust is helping tenants to access government relief measures, which include a six-month to one-year loan. And the trustee-manager will look to grant rental rebates for retailers requiring an extra helping hand.

Better times ahead

As businesses grapple with the challenges of Covid-19, Wang is already planning for better times. “Once the situation normalises, demand for retail offerings will increase exponentially, especially among those who have been quarantined,” she predicts. In particular, she thinks there will be greater interest in “experiential activities” such as sitting down to enjoy a cup of coffee at Starbucks and watching a movie on the big screens in cinemas.

And Wang believes DRT’s malls – located in Guangdong’s Greater Bay Area – are well-poised to cater to such activities. The five malls – Shiqi Metro Mall, Xiaolan Metro Mall, Ocean Metro Mall, Dasin E-colour and Doumen Metro Mall – offer a comprehensive shopping experience, she says.

However, each mall has features unique to itself, says Wang. For instance, Shiqi Metro Mall sits in a core urban area and caters to a more mature crowd. Ocean Metro Mall, on the other hand, reaches out to the experience-seeking shopper through its mid- to -high-end retail, dining and entertainment offerings. It also caters to a younger audience through atrium sales and live shows. Meanwhile, Xiaolan Metro Mall and Dasin E-colour are considered the trust’s “trendier malls” with their tenant mix catering to a younger demographic. Lastly, Doumen Metro Mall – the trust’s $274.8 million asset acquired in 3Q2019 – is an integrated one- stop mall with something for everyone.

To ensure they remain relevant, the malls constantly undergo asset enhancement initiatives (AEIS) to attract the right talent mix desired by their patrons. “It is a continuous effort and strategy to enhance our tenant mix to improve shopper traffic and shoppers’s experience,” shares Wang.

The most recent AEI was undertaken between 2018 and 2019, toby Xiaolan Metro Mall – one of the oldest malls in the trust’s portfolio – in 2018 and 2019. Its Karaoke lounge was upgraded to boast a sleeker layout, while a leisure and entertainment joint was converted into an F&B outfit.

Aside from this, a 1,000 sq m (10,760 sq ft) plot occupied by a furnishing tenant was replaced by popular hot pot restaurant HaiDilao. The introduction of this award-winning restaurant has driven more traffic to the mall, saysnotes Wang. “The good thing is, when people come to eat at restaurants, they often don’t just stop at eating. So, while waiting for their queue number or after eating, they may also do some window shopping or stop by at the supermarket,” she muses. These enhancements have brought a positive rental reversion of approximately 54%, notes Wang. The mall also replaced its Xinxuan restaurant with another F&B offering, which correspondingly brought a positive rental reversion of 44%.

Over at Ocean Metro Mall, the trust has just completed two conversions. The first was to its Sunning store and basement atrium, which were converted into a music lounge and sports hub featuring a myriad of tenants, in a bid to reach out to millennials. But, the biggest change was the introduction of a 9,100 sq m children’s play area and education and training facility, previously occupied by a furnishing tenant. “This is to reach out to parents who can come and shop while their kids are occupied with studies and play,” says Wang. While the space will only open once the virus outbreak is over, it has already brought a 43% rental reversion.

New acquisitions

DRT is now acquiring two malls – Shunde Metro Mall in Foshan city and Tanbei Metro Mall in Zhongshan city, via the purchase of the entire equity interests in Singapore holding companies. The acquisition is slated for completion by 2Q2020 at an estimated cost of $333 million, subject to post-completion adjustments.

The trustee-manager plans to fund the acquisitions with a mix of debt and equity financing as well as internal funding. The debt financing will be from a drawdown from debt facilities made available from commercial lenders. And for the equity financing, the trust proposes to issue up to 120 million new units at an illustrative issue price of 82 cents each to raise about $98.4 million.

Operating out of the National Manufacturing Innovation Centre, the nine- storey Shunde mall began operations in November 2018. Across its 177,276 sq m, the mall offers prominent labels like Suning, HaiDilao and Häägen-Dazs. Its agreed property value – negotiated on a willing-buyer, willing- seller basis – stands at RMB1.9 billion ($390 million). This is at a 25% discount from the RMB2.5 billion quoted in the independent valuations of D&P and JLL.

Given the Shunde Mall’s 4.3% net property income (NPI) yield for FY2018, Wang expects it to generate a higher income for DRT.

Meanwhile, the 13,640 sq m Tanbei mall is well positioned to ride on Zhongshan city’s regional transportation, technology and innovation hub status. The four- storey mall began operations in March 2018 and boasts anchors such as the Xin Garden restaurant. Its agreed property value is RMB55.6 million – a 23.8% discount from the valuation of D&P and 26.5% discount of JLL. The mall’s NPI yield – which was 10.7% for FY2018 – is set to grow over the years, says Wang.

The malls are each held by a China holding company previously owned by the Zhongshan Dasin Management and Investment, which is in turn owned by DRT's deputy chairman Zhang Zhongming (and nephew of Zhang Zhencheng, the trustee-manager chair), as well as the older Zhang’s two siblings. Hence, the acquisitions needed an EGM for unitholder approval and this was obtained on Dec 20, 2019.

Bullish calls

DRT’s recent results for FY2019 ended Dec 31, saw it book a distribution per unit (DPU) of 3.95 cents, up 3.6% from 3.8 cents a year before.

However, including the distribution waiver that was meant to provide short-term DPU support to help the REIT tide over the gestation period of its two younger malls - Dasin E-Colour and Ocean Metro Mall - DRT’s DPU came in at 6.82 cents, down some 5.5% from 7.22 cents last year.

Overall, revenue for the year stood at $76 million, some 6.6% higher than $71.3 million in FY2018. This comes from a $6.2 million revenue inflow from the Doumen mall as well as higher rental income from Xiaolan mall, Ocean mall and Dasin E-Colour. However, the increase was partially offset by the depreciation of the renminbi.

Property operating expenses for the year increased 14.8% to $16 million. This brought NPI to $59.9 million, 4.6% up from the $57.3 million logged in the previous year. Year-to- date the counter is down 1.2% to close at 83 cents on March 26. At this level, the company has a market cap of $531.1 million and has a P/B ratio of 0.6 times.

Despite scepticism over how DRT will perform once the distribution waiver expires next year, – Wang is confident that the trust will keep going as its malls have an occupancy of 98.8% and a long weighted average lease expiry (WALE) of about 4.1 years.

Analysts at Phillip Capital agree, noting that “the percentage of unit“ under distribution waivers was 38.2% in FY2019 and will fall to 24.3% and 19.3% in FY2020 and FY2021, increasing the number of units that are entitled distributions over the years”. This, they add, will close the gap between DPU figures with and without the distribution waivers.

Furthermore, the trust’s high proportions of leases with a guaranteed minimum income ensure a sustainable income flow. Of its leases, 13% are fixed while 66% are fixed with built-in escalations ranging from 3% to 10% per annum.

To this end, analysts at Phillip Capital are maintaining “buy” calls at a target price of 88 cents – a 14.7% upside for the stock.

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